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Supreme Court Affirms Cuozzo – Leaving in Place BRI and Judicial Review Limitation for IPR Proceedings

In Cuozzo Speed Technologies, LLC v. Lee, No. 15-446, the Supreme Court affirmed the Federal Circuit’s holdings on claim construction and the scope of judicial review in an inter partes review (IPR) proceeding.

First, the Court split 6-2 in holding that courts may not review the PTO’s decision to institute an IPR, even after a final decision—at least with respect to the “mine-run” issue presented by this case.  In an opinion authored by Justice Breyer, the majority concluded that the “strong presumption” favoring judicial review was overcome by the statutory text in this instance.  The majority, however, left open the possibility that certain institution-phase actions by the PTO “may be properly reviewable” on appeal of a final decision, such as when the PTO “act[s] outside its statutory limits.”  In dissent, Justice Alito (joined by Justice Sotomayor) acknowledged that the specific challenge raised here might not ultimately merit relief—but this was no reason to deny judicial review of the PTO’s compliance with any of the limits Congress imposed on the institution of patent review proceedings.  According to the dissent, such review is essential to the proper functioning of such proceedings, and not clearly precluded by the statutory text.

Second, the Court unanimously held that the PTO can continue to apply the “broadest reasonable interpretation” claim construction standard in IPR proceedings.  It reasoned that the PTO’s regulation setting BRI as the standard to apply was a reasonable exercise of its rulemaking authority, and not unfair to patent holders because they can amend claims.  Moreover, the Court stated that the “possibility of inconsistent results is inherent to Congress’ regulatory design.”

Cuozzo garnered substantial attention in the patent community.  Over 30 amicus briefs were filed in this case, many on behalf of multiple entities.  In general, pharma/biotech innovators urged the Court to reverse the Federal Circuit on one or both grounds, whereas generics manufacturers and tech companies largely favored affirmance.

Cuozzo was an appeal from a final decision rendered in the first IPR proceeding instituted by the PTO.  Below, the panel split 2-1 on both issues, and the Federal Circuit denied en banc review by a vote of 6-5.

Judicial Review Denied Some of the Time

The Court held that the “No Appeal” provision in section 314(d) of the America Invents Act (“AIA”) precluded judicial review of whether the PTO exceeded its statutory authority in instituting the IPR that ultimately led to the cancellation of Cuozzo’s patent claims.  According to the majority, the language of this provision was sufficiently clear to overcome the “strong presumption” in favor of judicial review of agency action—at least for the challenge presented here.

The majority rejected the argument of Cuozzo and the dissent that § 314(d) prohibited only an interlocutory appeal and did not bar a court from considering if the IPR was properly instituted during an appeal from a final decision.  The majority pointed to other language in the AIA and the Administrative Procedures Act limiting judicial review to final decisions—which it claimed would make § 314(d) superfluous under Cuozzo’s interpretation.

The majority’s holding appears to be driven in part by the particular institution challenge raised by Cuozzo.  The initial petition for IPR challenged all claims of the patent at issue as obvious and/or anticipated, citing specifics sets of prior art references for each claim.  Relevant here, the petition alleged two specific obviousness grounds for claim 17 (based on sets of three and four references), which were not raised against claims 10 and 14 and also included prior art not otherwise cited against those claims.

The PTO granted review of—and ultimately cancelled—all three of these claims based on the two obviousness grounds raised only with respect to claim 17.

Cuozzo claimed that the petition for review did not “with particularly” challenge claims 10 and 14 as obvious in view of the same references as claim 17, as required by § 312 of the AIA.  The PTO found that they were “implicitly” challenged as such, noting that claim 17 was directly dependent on claim 14 and indirectly dependent on claim 10.  Cuozzo thereafter had an opportunity to defend those claims on the same ground as claim 17 before the final decision.

The majority reasoned that, “the ‘No Appeal’ provision’s language must, at the least, forbid an appeal that attacks a ‘determination … whether to institute’ review by raising this kind of legal question and little more.”  The majority further explained that the congressional purpose of the AIA’s patent review proceedings would be undermined if “the agency’s final decision could be unwound under some minor statutory technicality related to its preliminary decision to institute inter partes review.” (emphasis added).

The dissent on the other hand cautioned that “any perceived weakness in the merits of Cuozzo’s appeal does not mean that such issues are unworthy of judicial review.”  It further observed that the Court’s ruling could render unenforceable various important limitations on the scope of the PTO’s authority to institute IPRs as well as other types of patent review proceedings.

Responding to this critique, the majority stated that “we do not categorically preclude review of a final decision where a petition fails to give ‘sufficient notice’ such that there is a due process problem with the entire proceeding, nor does our interpretation enable the agency to act outside its statutory limits by, for example, canceling a patent claim for ‘indefiniteness under §112’ in inter partes review.” (emphasis added).

The majority thus left open the possibility of judicial review of institution decisions that violate statutory limits, after final decision.  But as noted by the dissent, under the majority’s decision, “how to determine which ‘statutory limits’ we should enforce and which we should not—remains a mystery.”  The dissent “would avoid the suspense” and afford review to any alleged violation by the PTO of “the limits Congress imposed on the institution of patent review proceedings.”

Claim Construction Standards

The Court held that the PTO properly exercised its rulemaking authority in setting BRI as the claim construction standard for IPR proceedings.  Petitioner and numerous amici urged the Court to reverse and have the PTO use the claim construction standard set forth in Phillips v. AWH Corp., 415 F.3d 1303 (Fed. Cir. 2005) (en banc), which is applied by federal courts in patent infringement litigation.

The Court first explained that the AIA does not itself provide a claim construction standard for IPRs and other patent review proceedings, and instead delegates authority to the PTO to promulgate regulations on such issues.  The PTO acted within this authority when it set BRI as the claim construction standard for AIA proceedings.  (With the exception of expired patent claims and those that will expire before a final decision, which the PTO construes using Phillips.)

The Court emphasized the PTO’s long history applying BRI in a number of different proceedings.  It also reasoned that since the PTO could consolidate IPRs with other PTO proceedings that have long used BRI (e.g., interference), it was sensible to have the PTO apply the same claim construction standard in all of its proceedings.

The Court rejected Cuozzo’s position that applying BRI was unfair to patent holders, and would undermine these patent review proceedings by having different standards apply in IPRs versus district court litigation.  The Court stated that the “possibility of inconsistent results is inherent to Congress’ regulatory design.”

The Court also rejected Cuozzo’s argument that the IPR process did not provide a sufficient avenue to amend claims in order to address invalidity under a BRI construction.  The Court stated that to the extent few claim amendments have been granted in IPR proceedings to date, this could simply reflect that few were meritorious and does not necessarily evidence some flaw in the system.

Justice Thomas wrote a brief concurrence to voice his continued objection to aspects of the Chevron doctrine, which the majority cited in its opinion but, he asserts, was not essential to the outcome.

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